M&S trounced as £8bn Next grows to twice its size... by being ‘boring’

HIGH STREET chain Next has risen to twice the stock market value of its fiercest rival Marks & Spencer – even though M&S operates a similar-sized clothing arm and a large grocery division on top.

Next’s gravity- defying share price gives it a value of £8 billion compared with M&S at £3.7 billion – making Next the third most valuable retailer in the UK behind Tesco and food delivery firm Ocado.

Retail sources said Next has defied the gloom with a ‘provincial’ focus as profit margins at many of its London-based rivals have been ripped to shreds.

The Leicester-based chain, which sells £ 4.2 billion of clothing and home furnishings each year, has succeeded where others have failed by remaining ‘reassuringly predictable’, fashion insiders said.

They credited Next’s success to the meticulous approach of long-serving chief executive Lord Wolfson of Aspley Guise and clothing styles that some describe as ‘boring’.

One fashion insider said: ‘ They know what Michelle in Leeds and Tasha in Wolverhampton want and they have seldom been distracted from a laser focus on that core provincial customer. Next own-brand trousers are all classics, they won’t be the cheapest but they won’t break the bank and will last for years.

She added: ‘ A lot of us in the industry think being tucked away in Leicester and not part of the London fashion glitterati has served them well. They never pick trends that would risk making their customers look daft.’

Another said: ‘Some might call it boring but in this market reassuringly predictable is a positive for shoppers and shareholders alike.’

By comparison Marks & Spencer, the high street’s bellwether two decades ago, has often been accused of losing track of what its ageing core customer wants and of becoming distracted by the latest trends.

Next has also long benefited from launching its online site in 1999 which initially helped drive sales to its catalogue.

Sofie Willmott at GlobalData said just over half Next’s sales are online ‘ and its competitors like M&S, Debenhams and New Look are way, way lower than that’.

That, and careful management of its property portfolio and lease contracts, has enabled Next to defy the forces that have crushed rivals such as Debenhams, House of Fraser and, last week, Jack Wills, Coast and Karen Millen.

Whitman Howard analyst Tony Shiret said: ‘You could argue Next’s valuation is a composite between an online retailer and a high street retailer. The shops are not really doing any better than anyone else’s but the online business is growing at 12 per cent annually.’

He said Next offered an alternative to discounters which increasingly dominate the market. ‘There isn’t much left in the middle market now and so Next has pretty much found a gap there.’

Shiret added: ‘The core product is pretty dull but the way they market it is very smart. Wolfson is also quite clever at introducing new things into Next’s online offer and that has kept it moving forward.’

A few years ago Wolfson was playing ‘catch up’ when its online growth ground to a halt, Shiret said. But adding other brands, from Boden to Barbour, sharpening its delivery speeds and ‘being more aggressive in its use of credit to sell the product’ have all paid off.

Next credit users, who owed the business £712 million at the end of March, spend around £400 a year – about four times what comparable shoppers at some well known online retailers spend, Shiret added.

The credit accounts also allow Next to be in ‘very, very regular contact’ with its core credit shopper so its marketing costs are a fraction of rivals.

Share buybacks, including £300 million of repurchased stock this year, have helped buoy the shares. But that could leave the shares exposed if B rex it goes badly.

Meanwhile, M& S which has drifted close to FTSE100 relegation several times in the past year, could drop out of the blue chip index next month.

Its valuation, already eclipsed by JD Sports, leaves it at risk of being overhauled by fast growing discounters such as B&M at £3.5 billion and Boohoo at £2.8 billion.